The State Council Information Office (SCIO) held a policy briefing on September 5, 2022 (3:00 p.m., Monday). Liu Guoqiang, Deputy Governor of the People’s Bank of China (PBC), briefed on China’s follow-up policies to the policy package for stabilizing economy and answered questions from the press. The transcript is as follows.

Liu Guoqiang, PBC Deputy Governor:

Good afternoon, friends from the press. At the State Council executive meeting held on August 24, follow-up policies to the policy package for stabilizing economy were rolled out. On top of the policy package for stabilizing economy, 19 follow-up policies will be released to form greater synergy and consolidate the foundation for economic recovery. Another executive meeting of the State Council held on August 31 unveiled measures to fully unleash the benefits of policies and expand effective demands at a faster pace. Following the decisions and arrangements made by the Central Committee of the Communist Party of China (CPC) and the State Council, the PBC has speedily implemented the policy package and follow-up policies to consolidate the foundation for economic recovery, boost the momentum for development, and strive for the best results.

First, we have enhanced the stability of aggregate credit growth. We have previously set up RMB800 billion credit lines for policy and development banks and launched RMB300 billion of policy-backed and development-oriented financial instruments, and then we have added another more than RMB300 billion to the instruments, which can be further expanded as needed. Extending stronger support to infrastructure construction and major projects, the PBC has incorporated the renovation of old urban residential areas and the construction of provincial highways into the support scheme. The PBC has also guided financial institutions to expand medium and long-term (MLT) loans and encouraged them to issue special financial bonds for agriculture, rural areas, rural people, and micro and small businesses (MSBs) to expand the sources of funds available for lending.

Second, we have facilitated cutting financing costs for businesses. The open market operation (OMO) and medium-term lending facility (MLF, or “spicy noodles” as you call it) rates dropped both in January and August by a total of 20 basis points, bringing down the 1-year and over-5-year loan prime rate (LPR) by 0.15 percentage points and 0.35 percentage points, respectively. Going forward, the PBC will give better play to the role of the LPR as a benchmark lending rate and the role of the market-oriented adjustment mechanism for deposit rates, and guide financial institutions to transmit the effects of deposit rate drops to the pricing of loans, thereby reducing the costs of business financing and personal credit.  

Third, we have focused our support on key areas, weak links, and industries affected by COVID-19. The PBC has made full use of central bank lending for rural development and MSBs, the special central bank lending for the clean and efficient use of coal, for sci-tech innovation, for inclusive elderly care services, and for transport and logistics sectors, the instrument supporting inclusive MSB loans, and the carbon emission reduction facility (CERF). We have continued to allow deferred repayments on loans to MSBs, self-employed businesses, and truck drivers as well as on mortgages and consumer loans to individuals affected by COVID-19. The PBC will ensure that the reasonable financing needs of the real estate sector are met and provide support for buyers of first and second homes as appropriate. Moreover, the PBC will step up financial support for key areas of the platform economy in accordance with laws and regulations to bolster the sustainable and sound development of the platform economy.

Going forward, the PBC will continue to implement sound monetary policy. While intensifying efforts to consolidate the foundation for economic recovery and growth, the PBC will refrain from a deluge of stimulus policies and from sacrificing future policy space. In doing so, the PBC will stand ready for the convening of the 20th CPC National Congress. Thank you.

Journalist with the Bloomberg:

Given that the RMB has been depreciating against the US dollar and other currencies, is there still any policy space for interest rate cuts?

Liu Guoqiang:

Thank you. China is an open economy, so the RMB exchange rate is inevitably affected by various factors. The ongoing intensified adjustments of US monetary policy is a major factor, which has resulted in the appreciation of the US dollar by 14.6 percent since the beginning of 2022. Other reserve currencies in the Special Drawing Rights (SDR) basket have depreciated sharply against a stronger US dollar. The RMB has gone down by around 8 percent, but the decline is the slightest compared with other non-USD currencies. From January to August, the euro depreciated by 12 percent, the British pound by 14 percent, the Japanese yen by 17 percent, and the RMB by 8 percent. Obviously, the RMB has depreciated by a relatively small margin. Looking at the SDR basket, the RMB has only depreciated against the US dollar but appreciated against all other non-USD currencies. In other words, within the SDR basket, the US dollar has appreciated, so has the RMB, only at a lower rate. Therefore, there is no across-the-board depreciation of the RMB.

In addition to the exchange rate, we should also monitor market developments. China’s foreign exchange market right now is functioning smoothly with orderly cross-border capital flows. And the spillover effect of the US monetary policy is controllable. This has become possible in part due to the long-term sustainability of the fundamentals of the Chinese economy and its strong resilience. Our economy is, to my belief, poised for another upward phase. It is also buoyed by the RMB exchange rate mechanism. We have further deepened the market-oriented reform of the RMB exchange rate regime and improved the macro-prudential management framework. The RMB exchange rate has become more flexible, playing its role in macroeconomic management and serving as an automatic stabilizer for the balance of payments.

I suppose that you are also concerned about future developments. Here are my views. The long-term trend of the RMB exchange rate is clear, as the RMB will become widely accepted by the international community. In the short term, however, it is normal to see two-way fluctuations instead of one-way movements. The exact point of the exchange rate is hard to guess, and I advise you against betting on a specific point. A reasonably balanced and generally stable RMB is what we are happy to see, and we are able to support it. I don’t think there will be any disruptions, nor will we allow any disruptions to happen.

I will also say a few words about monetary policy. Monetary policy serves the economy. Due to specific fundamentals and financial environments in different economies, it is natural that monetary policies differ from one another, just like we each wear shoes of different styles and sizes. As a major economy, China will pursue its own monetary policy in light of its national realities. In the wake of the COVID-19 outbreak, our government efficiently coordinated COVID-19 response and economic and social development and China was the first economy to achieve positive economic growth. Accordingly, it is possible and necessary for China to implement normal monetary policy and refrain from a deluge of stimulus policies and excessive money supply, thus not sacrificing future policy space. We have not opted for an unconventional monetary policy, nor has we exhausted our toolkit. Therefore, China’s monetary policy enjoys ample space with sufficient tools. Neither price-based nor quantitative tools are in short supply.

Going forward, we will press ahead with sound monetary policy, implement policy tools effectively, appropriately, and efficiently, strike a balance between stabilizing economic growth, employment, and inflation, and effectively address various risks and challenges. Thank you.

Journalist with The Paper:

Could you please elaborate on the implementation of the RMB300 billion worth of policy-backed and development-oriented financial instruments launched earlier? Why did the PBC decide to provide an additional quota of over RMB300 billion? How will it be allocated? Any progress so far? And what’s your plan for the next step? Thank you.

Liu Guoqiang:

Thank you for your questions.

Following the arrangements made at the State Council executive meetings, the PBC supported the launch and use of RMB300 billion of policy-backed and development-oriented financial instruments by the China Development Bank (CDB) and the Agricultural Development Bank of China (ADBC) in July. The funds were used to replenish capital for major projects. In the meantime, the PBC guided the two banks in project coordination. A coordination mechanism was established and promoted for effective investment on major projects, with the National Development and Reform Commission (NDRC) playing a leading role in the process. It selected alternative projects, stepped up land use approval and environmental assessment, and thus efficiently advanced contract signing and capital injection. Under concerted efforts, these RMB300 billion worth of funds had been injected into over 900 major projects as of August 26.

At present, China’s economy has maintained its momentum of recovery, but with slight fluctuations. At the critical moment of stabilizing the economy, we must consolidate the foundation for economic recovery and growth with a true sense of urgency. The additional quota of over RMB300 billion, aiming at replenishing capital for major projects, is expected to help unleash the potential of effective investments to shore up weaknesses, adjust the structure, stabilize employment, and boost consumption, thereby bolstering economic recovery and growth. This is a feasible move and the funds will be effectively allocated, as evidenced by the alternative projects selected by the NDRC. Next, following the decisions and arrangements of the CPC Central Committee and the State Council, the PBC will, in collaboration with relevant authorities and in accordance with market principle and the rule of law, deliver solid progress in the work related to policy-backed and development-oriented financial instruments. Steps will be taken to expedite financial support, facilitate project coordination, and ensure effective implementation. We will concentrate on the following three tasks:

First, the PBC will expedite the commencement of construction projects. Under the coordination mechanism, we will urge financial instrument-backed projects to speed up commencement preparations and pro-construction factors supplies, make payments and use funds as required by the progress, so as to start construction as soon as possible. By end-Q3, or end-September, we will deliver more concrete progress and more effective investments.

Second, the PBC will actively facilitate project coordination. On top of the sufficient projects offered by the NDRC, we will urge policy and development banks to promptly get in touch with a new set of alternative projects, make investment decisions independently based on thorough evaluation, and provide more funding for localities where projects are highly mature. While scaling up investment, banks should adhere to market principle and the rule of law, so as to avoid quality problems in loan issuance.

Third, the PBC will follow up on financing support, in addition to providing replenishment capital. We will guide policy and development banks to make good use of the additional credit lines and to grant supporting loans to financial instrument-backed projects in time. In addition to mobilizing policy and development banks, we will encourage social capital, including the funds of commercial banks, to follow up with financing support, so as to boost financial support in concert. Thank you.